Revenues, But Not Profits, Soar For Hollywood In 2013

2013 was an up and down year at the movies. There was a crop of box office flops. "The Lone Ranger" and "After Earth" fell into that trap. Steven Spielberg went so far as to predict an implosion of the film industry. Despite all that, 2013 looks to be the most lucrative year ever at the box office, but don't get your hopes up for the movie business just yet.

Stephen Galloway, executive features editor at the Hollywood Reporter, is not impressed by breaking that particular record.

STEPHEN GALLOWAY: What Hollywood is great at doing is touting the final numbers, the box office. But Hollywood spent so much to make movies and market them that the final result actually is somewhat disappointing. Over the summer alone, it released something like 17 enormously expensive movies, $100 million or more each. Add another 50 to 100 per picture for marketing costs, and many of those failed. So the final box office reflects the successes; it doesn't reflect the vast sums of money that were spent to get there.

WERTHEIMER: Well now, one of the things I think that a lot of people have pointed out is that for a while people just stopped going to movies. Movies seemed too expensive in straightened times. But that seems to have changed.

GALLOWAY: I'm not really sure that's true. You've still got roughly the same attendance numbers as last year. It's pretty much flat. And by the way, it's been flat for a while despite population increase. Nobody's looking at North America as a growth market. What they're looking at is the international box office. That's where more and more money is coming in, and we don't have the final numbers for the foreign box office this year, but you know, there are few red flags there too.

If you look at China, which everybody perceives as the single biggest growth market, a market that's expected to have revenues greater than North America in about five years time, this year films from the Hollywood studios didn't really do better than last year. And in the Top 10 China released films, I think roughly six of them were locally made products as opposed to American product, and that's twice the number of a year ago.

GALLOWAY: Correct. What China's failed to do is create an export market for their films. Hollywood's been fantastic at exporting its own movies and the amounts that Hollywood makes from foreign contract has grown year in, year out. But it doesn't seem to be showing a way to have explosive growth, and that's why over the past you've seen investors like Daniel Loeb urging, for instance, Sony to split off its movie studio because they don't see huge growth there.

WERTHEIMER: So is the film industry going to do anything to sort of fix this? I mean, do they see anything, any solutions ahead?

GALLOWAY: The studios have started making fixes. If you look at the major studios, there's been upheaval in a handful of them. Fox lost one of its chairman; Universal lost its chairman; Warner Brothers replaced its chairman. That's an awful lot of executive change. And I promise you, it wouldn't be happening if the studios didn't realize they have a problem. What they haven't created is a long-term strategy to address that problem.

WERTHEIMER: So what do you see going forward? What do you think 2014's going to turn out to be?

GALLOWAY: 2014 looks like it's going to be a repeat of 2013, but you've also got this pileup of very expensive films, tent poles as they're known, coming in the summer. You've got something like 15 films or more, big films, and it's an awful lot for a three-month window. So the question is, will the audience expand to fit those films or is there a finite number of people going to the box office, in which case some of those films will fall and Hollywood's profits will fall too.

WERTHEIMER: So is there a silver lining? Did anything that happened in cinema this year make you feel optimistic about the future of movies?

GALLOWAY: Well, there are a few good things that are happening. One is there's been some terrific movies made. "American Hustle," Gravity," Twelve Years a Slave," "The Butler," "Wolf of Wall Street." They're really, for me, superb pictures. We also have a new star who's really emerged, Jennifer Lawrence, and it's great to see a women becoming a major star when Hollywood traditionally seems to have just thrown up male stars.

These are good signs. But in the long term, the studios have yet to really create a strategy for what's going to help the American motion picture business thrive in the long term.